ECB lends €442bn in record auction
The European Central Bank (ECB) will pump a further €442 billion into money markets after a record auction on Wednesday (24 June), in which eurozone banks snapped up one-year loans amid expectations borrowing costs may rise in future.
The ECB move to lend billions of euros across the 16-country currency area is designed to unblock bank lending, improve private sector access to credit and revive the area's ailing economy.
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Banks provide roughly three quarters of company financing in the eurozone.
Financial markets have dubbed the move a continuation of the ecb's non-standard measures, with Wednesday's auction part of a wider ECB policy to provide unlimited liquidity to banks since the financial crisis began.
The €442.2 billion in 12-month loans – charged at the ECB's current benchmark interest rate of one percent - went to 1,121 banks. They will receive the funds on Thursday.
The move appeared to take immediate effect with the euro area's interbank lending rate – the Euribor – falling to record low of 1.57 percent for 12-month loans on Wednesday.
Faced with the worst recession since World War II, the ECB has also cut interest rates to a record low in recent months and will next month start buying €60 billion in covered bonds.
Two more auctions of one-year loans are scheduled for this year, one in September and one in December, with their success depending on whether banks in turn make the money available to the private sector.
Weak recovery in sight
The ECB move came as the Paris-based Organisation for Economic Co-operation and Development (OECD) said in its latest World Economic Outlook report on Wednesday that a weak recovery is in sight but that damage from the crisis is likely to be long lasting.
The organisation's revised GDP forecasts predict a contraction of 4.1 percent for this year and 0.7 percent positive growth for 2010, both improvements on previous estimates.
"OECD activity now looks to be approaching its nadir, following the deepest decline in post-war history," says the report.
While the recovery is "likely to be both weak and fragile for some time" the report continues, the impact of the financial crisis "could have been worse" had it not been for the emergency measures that have been implemented.
"Thanks to a strong economic policy effort, an even darker scenario seems to have been avoided," it concludes.